Good corporate governance helps all companies improve their performance, raise market confidence and attract more investment. It is for these reasons that Iberdrola is adopting an innovative and proactive approach towards it
Interview with Ignacio S. Galán, Chairman and CEO, Iberdrola
At Iberdrola, we have adopted a two-pronged approach to the challenge of corporate governance. This involves the continuous improvement in internal rules and practices, and maximum transparency in information communicated to the market. As an international energy company with over 100 years of experience, we employ over 30,000 people in more than 40 countries and are focused on a low-risk industrial model that is diversified both geographically and by business type.
Iberdrola is a model of industrial success, engaged in a process of continuous growth that has prioritised sustainable energy sources and has surpassed its competitors to become the fifth largest utility in the world. This industrial and financial strength has made it possible to generate value for our 400,000 retail and institutional shareholders, achieve increased profits and maintain a constant payout (between 55 and 60 percent in recent years).
For some, corporate governance could be viewed as merely a box-ticking exercise of compliance or non-compliance. At Iberdrola we view it as a sophisticated, dynamic discipline that reflects our company ethos.
Our two-pronged approach
At Iberdrola, our two-pronged approach is evidenced in a number of areas. For example, a corporate governance system to serve our shareholders has been an essential element of our strategy and is consequently enshrined in Article 1 of our by-laws. It involves:
- By-laws, as the basic document governing the company and its group;
- Corporate policies reflecting the principles and standards governing its activities in various areas;
- Other internal codes and procedures setting forth Iberdrola’s rules and regulations in detail.
This is an integrated system within which investors and shareholders can quickly find an answer to any question they may have regarding our corporate governance model, and involves a commitment of disclosure to the international financial community. Iberdrola’s website also provides easy access to these texts in the form of an ebook.
Another example of Iberdrola’s approach is the website itself, with a separate “shareholders and investors” section containing complete, well-organised and updated information regarding each aspect of our model. This website has drawn widespread approval from the financial community by providing easy access to comprehensive financial information.
In a recent independent study, organised by Deva, Iberdrola came top in the General Index at the Madrid Stock Exchange for informing stakeholders and for transparency, adequacy and accessibility. In 2006 the Spanish Securities Market Commission published their Unified Code (Código Unificado). Since then Iberdrola has incorporated as rules their 58 recommendations.
Composition of the board
Another example is the changes that have been instigated in the composition of the Iberdrola Board since 1991 after the successful merger of Iberduero and Hidroeléctrica Española. Then, Iberdrola’s board consisted of 38 members. This number was reduced to 21 in 2001; now there are 14. Although we already complied in 2007 with a minimum of one-third independent directors, 57 percent of the directors are now independent with less than nine years in their post.
In addition, three of the 14 board members have been women, putting us at the vanguard of gender diversity in the Spanish market and is merely one example of the board’s proactive approach to ensuring greater diversity and balance among its members. One of the main concerns raised in any analysis of a listed company’s management structure is its level of decentralisation: the controls on and counterbalances against the exercise of power.
Iberdrola is the parent company to a group involved in various businesses (generation, distribution, engineering, renewable, real estate, etc). Each of the different businesses is in turn managed by its corresponding sub-holding company. The role of the board of Iberdrola as a holding company is to formulate general strategies and policies as well as to supervise the global management of the group. However, management is completely decentralised at each of the sub-holding companies, which has its own CEO and its own board and audit committees that include independent directors who do not belong to the wider group.
The clearest example of Iberdrola’s commitment to corporate governance is the intensity of our engagement with our shareholders and investors. Iberdrola has successfully developed a pioneering practice of corporate governance road shows. Although our investor relations department customarily maintains ongoing contact with the market to explain our financial and industrial performance, Iberdrola has created a new dimension to such contact.
For several years, we have been holding direct and frequent meetings with shareholders, investors, proxy advisors and analysts focusing on our corporate governance model. These provide explanations regarding our practices, policies, procedures and rules, but above all an opportunity to listen to our stakeholders’ proposals and address their concerns. The result of this engagement is the continuous inclusion of improvements and innovations within our corporate governance model.
For example, the information made available to the shareholders in convening Iberdrola’s 2010 General Shareholders’ Meeting not only offered the legally required documentation, but also showed that Iberdrola publicly assumed very specific commitments regarding corporate governance, setting out the standards to be followed (level of independence of the board and its committees, directors’ term of office, separation of the positions of Chairman and CEO, etc.) The foregoing examples illustrate Iberdrola’s approach to this discipline: A proactive, commitment-based, transparency-focused approach.
Increasing shareholder activity
The shareholder is the central component to Iberdrola’s corporate governance system. As in all legal systems, the company’s supreme decision-making body is the general shareholders’ meeting. As regards rights given to the shareholders beyond those provided by law, the by-laws reduce from five to one percent the percentage of capital required to request the inclusion of items on the agenda for shareholders’ meetings. Consequently, the board must call upon the making of a public tender offer for shares issued by the company.
Furthermore, all information for the exercise of shareholders’ rights is made available on the company’s website from the date of the call-to-meeting. This information is available from the outset in both Spanish and English. At the last ordinary shareholders’ meeting held in May 2011, all information was available 43 days in advance of the date of the meeting. In addition, shareholders could submit requests for written clarifications at the registered office or by mail or email up to seven days prior to the date of the meeting.
The following services are also available to the shareholders:
- The office of the shareholder, which is in continuous contact with shareholders during the entire year and is specifically available to them during the holding of the shareholders’ meeting;
- The shareholders’ club, as a permanent open channel of communication for shareholders who register their details with the club;
- The investor relations offices, which regularly responds on an individualised basis to questions from analysts and institutional investors.
In addition, all shareholders have the right to attend the shareholders’ meeting, regardless of the number of shares they hold, and they may be represented by another person. They can also give a proxy or exercise their voting rights electronically or by mail. As from the call-to-meeting, an electronic forum is enabled on the website that can be accessed by duly qualified shareholders or groups of shareholders. One of Iberdrola’s more notable practices is the publication of a shareholder’s guide for each shareholders’ meeting with highly practical information regarding the procedures and deadlines for the exercise of shareholders’ rights.
But perhaps the most important of Iberdrola’s commitment to its shareholders is the firm’s intent to maximise their participation in the shareholders’ meeting through the payment of an attendance bonus. This is intended to ensure that decisions adopted at the shareholders’ meeting, in favour or against board proposals, are based on the highest possible shareholder participation, and has allowed the company to achieve more than 75 percent shareholder participation during the last five years. This is proof, if required, of our maximum level of commitment to disclosure and transparency.